Digital Inclusion and Mobile Sector Taxation in El Salvador

In 2016, around 80% of the population subscribed to mobile services, but growth in mobile penetration has slowed recently, leaving one in five Salvadorans still unconnected and over two thirds of subscribers yet to benefit from mobile broadband services. Mobile sector revenues represented 2.7% of GDP in 2015 and the country’s five mobile operators have successfully delivered mobile coverage across the country’s largely mountainous terrain. This is despite mobile sector revenues having declined by more than a third between 2008 and 2015, while minutes of use have increased by 60% over the same period. However, other barriers to connectivity remain. The mobile sector is subject to several general and sector-specific taxes. In November 2015, the introduction of two new taxes substantially increased the level of taxation applied to the mobile sector. The mobile industry recognises that its fiscal contribution remains critical to financing public expenditure, especially given the need to improve the country’s security situation. However, the current treatment of the mobile sector may be limiting growth in mobile connectivity that would benefit society and the economy. This report looks at how reforming mobile taxation could help align with principles of effective taxation recommended by leading international organisations, while benefiting society as a whole through increased mobile and internet usage.